Alert February 17, 2016

FTC Amicus Brief Confirms Need for Independent Proof of Causation in Private Reverse-Payment Antitrust Cases

Summary

In the ongoing battles over the antitrust treatment of pharmaceutical patent settlements, the Federal Trade Commission and private industry have not agreed on much. But a recent FTC amicus brief appears to signal a high level of convergence between the agency and industry on one key issue: what a private plaintiff must prove to show antitrust injury and recover damages in a “reverse payment” case. This alert presents key propositions pharmaceutical companies need to consider.

In the ongoing battles over the antitrust treatment of pharmaceutical patent settlements, the Federal Trade Commission and private industry have not agreed on much. But a recent FTC amicus brief appears to signal a high level of convergence between the agency and industry on one key issue: what a private plaintiff must prove to show antitrust injury and recover damages in a “reverse payment” case. This issue was not addressed by the Supreme Court in Actavis, and it has been hotly contested in follow-on claims brought by private plaintiffs.

The Actavis case itself involved an enforcement action brought by the FTC, but the majority of reverse-payment lawsuits currently pending have been filed by private plaintiffs, not a government enforcer. This difference matters. In the Actavis decision, which involved a claim for injunctive relief rather than damages, the Supreme Court stated that a large and unjustified payment from a patentee to a patent challenger that prevents the risk of competition constitutes the relevant anticompetitive harm. Following Actavis, the lower courts have struggled to apply its logic in private actions where a plaintiff seeks an award of damages and must prove actual injury. Under Section 4 of the Clayton Act, a private plaintiff must show that it has been “injured in [its] business or property by reason of” an antitrust violation, which has long been understood to require actual injury or injury-in-fact. The question is what this requirement means in the Actavis context.

In general, private plaintiffs in reverse-payment cases have argued that they meet the injury-in-fact and causation standards by satisfying Actavis, without more. In particular, many plaintiffs have argued that because Actavis identified eliminating “the risk of competition” as the relevant antitrust harm, plaintiffs can meet their burden by showing the existence of a reverse payment and the fact that the generic did not enter for some time following settlement. In essence, plaintiffs would allow the jury to infer injury-in-fact from the existence of a violation. Defendants, on the other hand, have argued that private plaintiffs must prove not only a violation of the antitrust laws under the Actavis standard, but also that the violation was the but-for cause of plaintiffs’ alleged injuries. In this context, that should mean that a private plaintiff seeking money damages has to prove (not simply assume) that, in the absence of the challenged agreement, a lower-priced generic product actually would have legally come to market sooner.

The FTC’s recent brief—filed in the appeal from the defense victory in the Nexium litigation, the first reverse-payment case to go to trial after Actavis—appears largely to side with defendants on this issue.  In particular, the FTC’s brief stresses the different standards facing public and private antitrust plaintiffs. The FTC’s brief is not primarily focused on what a private plaintiff must prove to establish causation; to the contrary, the brief is intended instead to address the government’s burden. The FTC argues that it only needs to show an antitrust violation, and that it can establish an antitrust violation under Actavis whether or not a generic competitor actually could have come to market any earlier. But to make its point, the FTC explicitly contrasts the requirements imposed on the government under Section 5 of the FTC Act (and Section 1 of the Sherman Act) with the additional requirements a private plaintiff must meet under Section 4 of the Clayton Act. “Although proof of injury-in-fact is not necessary to establish an antitrust violation,” for the purposes of government enforcement, the FTC states, that is not sufficient for private plaintiffs: unlike the FTC, a “private plaintiff must demonstrate a causal connection between the antitrust violation and an injury it actually sustained.”

The FTC’s brief thus recognizes key points that industry defendants have been making in treble-damages actions filed by private plaintiffs, including that: (1) the requirements for proving a substantive antitrust violation under the Sherman Act and for proving antitrust injury under the Clayton Act are separate obligations; (2) proof of a substantive violation does not automatically establish antitrust injury, because proving that conduct created a risk of harm is not the same as proving that it caused actual harm; and (3) nothing in Actavis relieves private plaintiffs of their obligation to show causation of actual injury.

There is nothing novel about these propositions:  it is well-established that a private plaintiff must independently show causation, even when the evidence supports a finding of an antitrust violation. This result flows logically from the fact that the substantive antitrust standard often is prophylactic—i.e., it permits the finding of a violation if there is a risk that the conduct may injure competition—but the standards for a damages recovery based on an antitrust violation require proof of actual harm. For example, the Robinson-Patman Act forbids price discrimination when “the effect of such discrimination may be to substantially lessen competition,” but that showing, by itself, cannot establish a private right to recovery. As the Supreme Court held, proof of the antitrust violation alone is not enough, “since such proof establishes only that injury may result.”[1] Courts have reached the same conclusion in private challenges to mergers, because the substantive antitrust standard requires only that “the effect of such acquisition may be substantially to lessen competition,” but that proof does not establish actual injury.[2] The rationale of those cases applies with full force to a reverse-payment claim: even if the evidence suggests that a large and unexplained reverse payments created “a risk of significant anticompetitive effects,” that evidence alone may not show that generic entry actually was delayed, or for how long, which a plaintiff would need to establish to show actual injury.

In recognizing the actual injury requirement for private antitrust cases, the FTC’s position in its amicus brief does not break new ground. Still, courts may find the FTC’s recognition of the additional causation burden a private plaintiff faces, over and above the requirement to prove a violation under the Actavis standard, to be informative as they consider the causation issues in private damages cases going forward.

 

Christopher T. Holding, Robert D. Carroll, and Sarah K. Frederick are partners in Goodwin Procter’s litigation department. They have defended clients in numerous antitrust challenges to pharmaceutical patent settlements.



[1] J. Truett Payne Co., Inc. v. Chrysler Motor Co., 451 U.S. 557, 562 (1981).

[2] Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 486 (1977).